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- 02/12: How do I pick the highest quality preferred stocks?
- 01/12: What is the lowest dividend rate to buy that still has some price protection?
- 12/11: What is the difference between a 'cumulative' and 'non-cumulative' dividend?
- 11/11: When Does The 'Call Date' Occur?
- 10/11: How Much Do I Receive When A Preferred Stock Is Called?
- 08/11: How do I avoid buying a preferred stock that I can never sell?
- 09/11: How Do I Calculate The Effective Annual Return?
- 07/11: What are the three types of preferred stocks?
- 06/11: What is a 'capital treatment event?'
- 05/11: What is a trust preferred stock?
- 04/11: What is a preferred stock's 'liquidation preference?'
- 03/11: How do I tell if there is strong demand for a preferred stock?
- 02/11: What price is used to calculate preferred stock dividends?
- 01/11: Why are preferred stocks considered lower risk than the same company's common stock?
- 12/10: What preferred-issuing industries tend to benefit from inflation?
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1 - Click To Post Comments:
Hello Don-
Thanks for your post.
For those who have yet to read Preferred Stock Investing, let me provide some background.
In October and November 2008 the U.S. government invested tens of billions of dollars in certain banks that met their investment criteria under the TARP program.
In exchange for this cash, the government receive custom-made preferred stock plus common stock warrants (like stock options).
If the government ever wanted to see their billions again, these banks were implicity "protected."
Then in April 2009 Fed officials, during a news conference, specifically stated that these banks were, in fact, too big to be allowed to fail - the implicit protection that these Big Banks enjoyed became explicit.
Applying the CDx3 Selection Criteria from chapter 7 of Preferred Stock Investing to these Big Banks resulted in 32 CDx3 Preferred Stocks issued by fifteen banks - what I have referred to as "The Protected Fifteen" CDx3 banks.
Now that these Big Banks are paying the TARP money back to the government, Don's question is - are they still "protected?"
The degree of protection is certainly lessened now that some of these Big Banks are starting to pay the TARP money back. But remember that the TARP investment also included warrants that the governemnt received in addition to preferred stock.
Once the government is divested of their position in these Big Banks (i.e. they have sold back their TARP preferreds and redeemed their warrants), the original incentive for the government to "protect" these Big Banks will be removed and they will no longer be protected in the same sence that they once were.
Thanks again for your post Don.
Many Happy Returns.
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